With the world going through such a period of change and uncertainty and the impacts this has caused on the global economy, it comes as no surprise that interest rates offered by financial service providers are currently low.
However in conjunction with This is Money, we wondered what factors might make people consider moving their savings from their current provider to someone different. So at the end of September we ran a Toluna Start survey with a nationally representative audience of 1075 savers aged 18+ to find out what the various factors are around this subject.
One of the first areas we explored was where people hold their savings. Two-thirds of respondents hold savings with the same bank or building society as their current account provider. A further 42% hold savings with a bank of building society that they do not have a current account with, whilst over a quarter (27%) hold products with National Savings & Investments.
Perhaps an indictment of the products and rates currently on offer is the fact that 17% of respondents mentioned keeping cash savings in their home – peaking at 27% amongst those aged under 35.
We asked those who hold savings with their current account provider why they do that. The main reasons most commonly focus around:
This highlights the fact that for many, the more traditional factors of keeping their savings safe and with a provider they know remains important but is often less pertinent than being easily accessible and in the same place as other financial products.
Only 17% mention that they get a preferential savings rate as a current account whilst 29% mention it is what they have always done.
The regularity with which money is put into savings accounts/products is encouraging, with 71% of everyone surveyed doing this at least monthly. This is relatively consistent across demographic groups, although those under 35 (76%) are more likely to do this than over 55s (68%).
However, despite a majority putting funds into their savings at least twelve times a year, engagement as to what the returns are or what else is available is much lower. Just over a third (36%) check the interest rates on their account on at least a monthly basis, but 47% do this twice a year or less (including 14% ‘never’ doing this)
This ultimately results in few people knowing exactly what interest they receive on their savings.
With over two thirds not being aware of their exact rate could be said to demonstrate a lack of engagement with their savings product management and it is noteworthy that those with investments of less than £20,000 who are likely to gain the least in monetary terms on the returns they get from their savings products, the ‘do not know’ score rises to 26%.
We also asked how often they check the wider marketplace for savings rates available, three in ten do this on at least a monthly basis, although one in five “never” do this (32% of those with investments of £20,000 or less) and 56% do this a maximum of twice a year (including those who ‘never’ do).
So there appear to be a number of factors causing many people to not look to change their savings provider but we wondered if we could test how strong this inertia is by placing them into two different scenarios and asking what they would do.
First we told respondents to imagine they had £10,000 in savings with a leading high-street bank and that they received £50 in interest on this each year. We asked them how much additional interest would be required for them to switch to a provider they were not familiar with. Almost half (46%) said interest would have to be at least £30 more than currently received and a quarter simply would not switch to a provider they are unfamiliar with.
Those most likely to rule out a switch to an unknown provider (24%) are those who don’t know the current level of interest they receive (43%) and over 55s (34%).
Those most receptive to trying a new provider for a better interest rate are people who know the exact level of interest they receive (only 12% rule out switching from this group).
The answers to this question show the strength of feeling towards maintaining the status quo which in turn highlights the challenges that newer providers including app based providers face in building market share through new products in the area of savings.
We also asked respondents to consider a scenario about what would they do if a provider cut their savings rate from 1% to 0.1%.
The results again emphasise the lethargy that many have towards looking for the best returns on their savings, especially considering the current savings rates on offer across the marketplace.
29% say they would leave the money where it is as savings rates are poor everywhere. This is followed by 19% who say they would switch to another provider offering the same type of product and 18% who would switch to a longer-term investment that offered a better interest rate.
Amongst the three in ten stating they would leave the money where it is, when asked why, comments often captured the cynicism that many have with savings at this time:
The arrival of COVID 19 caused us all to ‘batten down the hatches’ in many areas of our lives and this study is demonstrating that the Savings market is no different. Current low interest rates coupled with the convenience of saving where you know or where you have your other financial products means that people are inclined to stay where they are at the moment.
This means that any provider wanting to establish a new product will need to understand how they can differentiate their offering and engage consumers better. It is interesting to note that through our research solutions we are seeing a number of organisations exploring new ideas to help keep track of constantly changing consumer sentiment in this area and others in these uncertain times.
If you would like to know more about these results or how Harris Interactive helps Financial Service organisations understand consumer requirements in the area of NPD, please do contact us.
The article that appeared on This is Money about this subject featuring our research can be viewed here.